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Samsung Profit Falls on Lower Chip Prices

The Samsung Electronics Company reported today that second-quarter profit had declined 41 percent from the period a year earlier. But the company also forecast improvement in the second half of the year, citing a recovering world economy.

Attributing most of the profit drop to the falling price of semiconductors, Samsung reported a net profit of 1.13 trillion won ($955 million) in the quarter compared with a record 1.92 trillion won ($1.6 billion) in the quarter a year earlier. Samsung's operating profit on semiconductors was 570 billion won, down from 1.7 trillion won in the second quarter a year earlier.

Sales in the quarter dropped slightly, to 9.8 trillion won ($8.3 billion), compared with 9.9 trillion won in the second quarter of 2002. Semiconductors made up 38 percent of the company's sales in the quarter.

Samsung also said today that it expected profits on semiconductors to rise in the second half of the year as the price increased for the 256-megabit chip, which is considered a bellwether for the industry. The price was more than $2 a chip in the second quarter, but has now risen above $4.

Continuing to stake its future in semiconductors, Samsung announced this week that it would begin making the world's first one-gigabit memory chip. Its confidence in memory chips may come from its position as the only major manufacturer that has made money producing them.

Micron Technology, which is based in Boise, Idaho, ranks a distant second to Samsung in memory chip production and has lost money in every quarter since the beginning of 2001. Germany's Infineon Technologies A.G., the fourth-largest memory chip manufacturer, has lost money for the last two years. Hynix Semiconductor, the No. 3 chip maker and Samsung's lone Korean rival, has more than $6 billion in debt and has survived on cash transfusions from Korean banks.

Samsung also had lower profits on its telephone handsets. Its operating profit on handset sales was 550 billion won compared with 610 billion won in the second quarter a year earlier as sales fell to 12 million units from 13.2 million in the first quarter. Nonetheless, the company predicted sales for 2003 of 52 million handsets, sticking to its forecast at the start of the year.

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Despite the drop in profits, Samsung promised to continue investing in plants to make semiconductors as well as other products, anticipating 6.78 trillion won ($5.7 billion) in investment by the end of the year.

The vice president for investor relations, Cha Young Soo, said he was confident that profits would improve in the second half of the year. ''Once the economy does recover,'' he said, ''we believe that Samsung is in a clear position to benefit from future upswings.''

Investors clearly thought that the outlook was brighter and sent Samsung's shares to 16-month highs. Shares rose 2.5 percent to close at 418,000 won. Samsung, whose shares make up about 20 percent of the equity traded on the Korea Stock Exchange, has been the single biggest factor propelling the exchange's index above the 700 level this month after it dipped into the 500's earlier this year.

A company spokesman, James Chang, said the drop in the quarterly profits was a result of several recent developments. ''Business circumstances this year compared with last year are totally different,'' he said.

Mr. Chang said that the profit decline in Samsung's semiconductors reflected the slump in the information technology industry, especially in PC's and flat-panel display screens, a category in which Samsung leads.

He also said the SARS outbreak in China had hurt sales of Samsung products in Asia. The disease apparently never reached Korea.